Nonprofits vs. For-Profits: Mission and Performance

During a recent plane ride, I found myself sitting next to a former colleague from my first job as a management consultant. He was the leader of the consulting firm where I worked, and he's now running a different consulting firm that focuses on nonprofits.

After having the inevitable conversation about the differences between consulting to for-profits and not-for-profits (I'll call them FPs and NFPs), a question occurred to me: Why do we make such a distinction between the two? The only real distinction between them is a financial/legal one. Why is one of our primary delineations between organizations based on whether or not they pay taxes and are allowed to distribute excess capital to employees and shareholders?

Of course, anyone who has worked in or consulted to NFPs will tell you that the differences between FPs and NFPs is much greater than taxes and capital distribution. It involves culture, attitude, accountability, strategy, and a host of other things. And that's the thing; I don't know that it should. Perhaps we've just allowed organizations on both sides of the profit aisle to choose their own areas of mediocrity and lower standards.

So many NFPs (but not all of them) are allowed to accept lower levels of accountability, productivity, and rigor regarding return on investment than their FP counterparts. What is the rationale for such acceptance? Since they rely on volunteers and don't pay as much to their staff members, they can't expect as much. While they are glad to have people who are fueled by passion and idealism, they are reluctant to push them harder than their compensation somehow allows.

Passion and Idealism

On the other end of the spectrum, so many FPs (but again, not all of them) feel little need to tap into the passion and idealism of their people at all. Why? Because their purpose is to maximize compensation for investors, and everything else is just window dressing.

Of course, this binary approach to management is ridiculous, and makes sense only if we see employees as either puppies or robots, incapable of simultaneously embracing two distinct motivations and outlooks. The fact is, all of us are part puppy and part robot. We want to be motivated by something meaningful, and we want ourselves, and others, to be held accountable for performance and the value created.

So perhaps leaders need to stop thinking of their organizations as FPs and NFPs and start using a more meaningful and actionable criteria for categorization.

Is your organization going to be a mission-driven one (an MD), or a performance-driven one (a PD)?

Of course, the greatest leaders will choose both. They will inspire their employees around something more meaningful than simply profit, and they'll drive them to standards of measurable performance regardless of whether or not the CFO has to pay taxes at the end of the year or how they distribute excess capital. They'll choose to make their organizations MDPDs. Now there's a catchy four-letter acronym.

Before it's here, it's on the Bloomberg Terminal.